Real estate investment will continue to grow strongly in Spain

Alimarket Construcción

The recovery of real estate investment in Spain, which last year rose by 45% from the previous year to almost €14 million, will continue in 2018, according to all the forecasts. According to the Institute of Economic Studies (IEE, in Spanish), investment in real estate in Spain will continue to grow by more than 4%, mainly due to investment in housing. Sales of homes, which increased by more than 17% in 2017, will increase by more than 18% in 2018 to over 550,000 transactions, according to the latest report on the Spanish residential market drawn up by Servihabitat. Julián Cabanillas, the company’s CEO, says that “2018 will clearly be the year for real estate consolidation, with a vigorous market in most of the country, as shown by forecasts for the different indicators.

The factors helping to drive the market include the pull effect of effective demand, an increase in the availability of mortgage loans, investor interest and more new developments. New building projects will therefore grow by more than 20% in 2018, while the number permits granted with grow a little less. The year 2017 ended with 76,800 homes started and the forecast is that this year will end with some 94,000 homes started, an increase of 22%. Lastly, building permits for housing grew by 28% in 2017 to 117,800 projects, and it is expected that these will grow by another 19% this year to 140,000 units, according to Servihabitat data.

The retail and office segments were also quite strong at the start of the year, with the non-residential sector growing by 40% in the first quarter. According to Savills Aguirre Newman, the volume of investment expected in the distribution sector in the coming months will be around 2 billion, while in the office segment, transactions totalling some €2.5 billion are predicted. These data reinforce the 2017 trend, which set a record for the last decade by reaching 9.2 billion in direct investment in the non-residential segment, the second highest in the historical series and exceeded only by the 10.7 billion reached in 2007. The non-residential investor profile is still dominated by funds, which represent 60% of the total, followed by real estate investment trusts (Socimi, in Spanish) with 19%. Savills Aguirre Newman also says that international capital accounts for 63% of the non-residential segment and is the leading investor in all segments except for offices.

Rise of 45% in 2017

In Spain, 2017 saw property investment worth 13.989 billion, an increase of 45% from the previous year, according to property consultants JLL. Borja Ortega, the firm’s Capital Markets director, says, “This strong growth is the best reflection of Spain’s attractiveness as an investment destination and the strength of the real estate market. Operations have been more varied, particularly in terms of investment in alternative assets and land purchases.”

By segment, the retail market registered the highest volume of investment, reaching 3,909 billion, 31% higher than in 2016 and a historic figure due to the 35 transactions closed that year. This was followed by hotel investment, with an increase of 75% over the previous year. The total volume for the year was 3.875 billion, €590 million of which were invested in Madrid and €593 million in Catalonia. Investment inoffices took third place by volume, having topped 2.210 billion, although this was the only business segment that registered a drop from the previous year, since investment in this asset class decreased by 20%. Residential investment (purchases of complete buildings and land) shot up to 2.082 billion, a growth of 160% from the 802 million recorded in 2016. The logistics sector, spurred on by the dynamism of on-line commerce, received a record investment of 1,353 billion, a rise of 65% over the preceding year. Lastly, according to JLL, student residences played a leading role in the alternative assets segment with investment increasing tenfold last year to €561 million.

The second most attractive country in Europe

In the European context, Spain takes second place after Germany, where investors are more willing to invest in the real estate sector, according to a report by Knight Frank. Germany leads on investor attraction, with a 28.5% share, followed by Spain (19.9%), the United Kingdom (11.9%), the Netherlands (9.9%), France (9.3%), the Nordic countries (7.9%) and Poland (3.3%). Experts consider that real estate investment will continue to grow in Europe and Spain this year, exceeding the figures for the previous year. According to Maurizio Grilli, head of analysis and strategy for BNP Paribas Real Estate, “the possible increase in interest rates will not be a concern and the only key factor for the sector is keeping the real estate supply under control”.

Like Brexit in the United Kingdom, the political crisis in Catalonia has been the only destabilising factor for the Spanish market, especially in the last quarter of 2017. For the whole of 2017, real estate investment in Catalonia therefore fell by €2.093 billion, 17% below the figure for 2016, according to data provided by the consultants CBRE. Specifically, in the last quarter, which was so hectic politically, investment in that autonomous region fell by 30% to a mere 470 million, as compared to 672 million in the same period the previous year.

As in previous years, in 2017, 38% of real estate investment came from foreign countries, led by France, with a 13% share, and the United States, with 12%. By sector, the worst-off was retail, with a spectacular drop of 79%, contrasting with the office segment, which crept up by 4%. The relative normality of the political situation in Catalonia will undoubtedly favour a correction in the decline this year and the behaviour of investment will progressively approach the levels recorded by the rest of the country.

Lastly, for the whole of Spain, according to Adolfo Ramírez-Escudero, chairman of CBRE Spain, “rather than market recovery” talk is now of “solid growth”. His company considers that in 2018 the volume of investment will reach levels similar to 2017. Ramírez Escudero believes that the biggest challenge facing investors, who are increasingly specialized, will be to find a product that fits their strategy.